A time capsule of the greatest financial mania in the history of mankind, told in real-time by regular folks and patriots. May future generations better understand the madness of crowds, and how power and money corrupt.

February 02, 2008

Eric has an article out this month in Harpers predicting Alt Energy is the next bubble. Interesting call, since most stocks in this space just got halved in the past few weeks (look at FSLR and STP for examples). If there's to be a bubble there, this would be a good time to buy for sure. Or not if that's not the next bubble.

I do like energy, with world population and wealth climbing, but coal and oil will dominate for years. That said I did pick up PBW the other day as my clean energy play.

Bernanke taking interest rates below the rate of inflation (again) is very likely going to produce another bubble somewhere. The US economy and US consumers won't be able to function without a new asset bubble, with debt maxed out and incomes flat.

I don't know about the next bubble but I've seen several articles now about the cause of the coming depression after housing - and that's college costs.

The current generation of graduates will have such an insane amount of student loan debt that they'll be scraping by and eating ramen for the next 20 years.

With no disposable income after paying student loans, there's no money left to spend in the economy, and that means a depression, people.

Until our sorry-ass politicians wake up and finally start investigating the price-gouging that colleges get away with (outpacing inflation by over 70%), instead of increasing free handout money for student loans and grants, we're f*cked.

"I don't know about the next bubble but I've seen several articles now about the cause of the coming depression after housing - and that's college costs."

The cost of college has gotten so out of hand it's pathetic. As it gets worse there will be a push to make it possible to walk from student loans with no recourse other than a shitty credit report. When this happens tuitions are going to drop like a rock.

Agree 100% with Frank (I agree about 90% of the time with him anyway -- love Frank's site too).

But as for bubbles, I think it will be in commodities, especially precious metals. We've seen a big rise in commodities, but I think people are too quick to think commodities are going to pop. It goes along with the inflation-out-of-control argument, and it's becoming very easy to buy and sell (e.g. you can buy shares in a gold index which drives up the price of gold itself). Platinum is still moving up. Nickel had a big pop earlier but I think it will happen again, just bigger than before. Gold is $900+ per ounce and it will grab a lot of headlines once it hits $1000. I think the biggest bubble will be in gold itself, just because of the attraction people seem to have with gold over other precious metals.

3) Gold is easy for the average Joe to buy, either physically or indirectly through an ETF or mining stocks.

4) Gold has a certain allure. Just as with homes, it elicits platitudes like "They ain't printing more gold!"

Inflation-adjusted, gold's 1980 high would be somewhere between $2,000 to $3,000 per ounce, so there's still plenty of headroom. If it reaches those levels, and every Joe and Jane are talking about their mining stocks at cocktail parties, sell!

Gold will be a bubble but not yet. Wait for people to quit their jobs and head for the old abandoned mines looking for gold. That's what happened with the daytraders during the dotcom ponzi and the flippers during the RE ponzi.

Frank@Scottsdale-Sucks.com said... I don't know about the next bubble but I've seen several articles now about the cause of the coming depression after housing - and that's college costs.

The current generation of graduates will have such an insane amount of student loan debt that they'll be scraping by and eating ramen for the next 20 years.

With no disposable income after paying student loans, there's no money left to spend in the economy, and that means a depression, people.----------------

This is something that concerns me as a new parent. Not just college but all edu levels. Walk with me for a minute.

I live in a very large city. I was sent to the private catholic shools for grade scool and high school. I continued on to get my BA. I grad'ed 8th grade in 1990 and my local school (nothing fancy) was charging $370 / yr. Now as I look for schools for my growing family, that same school costs $3,700!

My private cath high shool was charging $3700 when I left in 1998, now thay want $7,200!

These increases are out of control. In ten years, my old high school will probably double to $15,000. My liberal arts college bill was $17,000 in 1998.

I predict that kids will not go to college just for a liberal arts type of degree. The parents (myself included will not pay for it) and the kids can't borrow enough to get a degree in basket weaving.

The higher learning bubble is over. The first two respectable jobs I had after college required a college degree, but did not need it to do them.

Colleges will cut out the liberal arts b.s. and cut to the chase if they want to stay competitive. Teaching or nursing degrees will be 2-3 yrs, you still need higher learning for that. Pre-med and pre-law will still be 4 yrs. Bio, chem or engineering will be cut to 2 yrs, if you did not lean the basics in h.s. then go some where else.

"I predict that kids will not go to college just for a liberal arts type of degree. The parents (myself included will not pay for it) and the kids can't borrow enough to get a degree in basket weaving."

I think you're underestimating the power of liberal arts! I started playing the piano about 18 months ago and my math and engineering skills are shooting through the roof!

The problem with colleges, I think, is that they're too content oriented; The next generation of schools should be developing "cognitive processes" instead. i.e., by playing the piano, it's rumored that your spatial and temporal abilities go up and that's what happened to me; thus, I think that k/12's and colleges should refocus on measuring cognitive processes rather than memorization;

i.e. baseball players took steroids instead of trying to practice a lot to get better and baseball players are even getting surgeries to enhance their abilities too (tommy jones surgery).

I also think that efforts like MIT's "Open Courseware" will be a good thing for students since professors won't have to be "talking books" any more.

> The higher learning bubble is over. The first two respectable jobs I had after college required a college degree, but did not need it to do them.

I work in higher ed, and so I see the stupidity daily. It is just like talking with condo buyers in 2005- people turn off their ability to reason when you start talking about the value of a degree. In a (formerly) selective engineering school, they put up these posters where they point to getting a degree as causing you to make more money… But if somebody were to present these arguments in a statistics class, they would fail.

But everybody believes the correlation between purchasing a degree and making money is actually causation. They have been conditioned to believe debt is wealth- so they finance their degree with massive borrowing. This debt-fuelled demand has allowed the degree cartel to charge whatever they feel like- they are just printing absurd amounts of cash, all while whining about the lack of socialist governmental support. I estimate that roughly half of our administrators have no actual work to do- they literally just go to meetings, talk a lot, and send really long emails about nothing. In order to keep budgets high, some departments have had to buy everybody highly adjustable Aerons. Every VP has their own computing department with their own server rooms full of idle boxes. We spend hundreds of thousands yearly on legacy hardware and the people to support it (even though a $10,000 commodity server could do the job better), because that budget sure isn’t going to spend itself.

Meanwhile, to keep numbers high, they have had to abandon academic standards. Kids graduate without knowing how to write, or even speak, in coherent sentences. CS graduates are no longer required to know how to write code or use computers beyond using Facebook or MySpace. Advanced courses are being replaced by high school level remediation courses. People like Ward Churchill are given tenure and put in charge of programs and departments they are obviously unqualified to lead.

I don't know about the next bubble but I've seen several articles now about the cause of the coming depression after housing - and that's college costs.

I agree with Frank, and that's why housing won't recoup for decades. The Baby Boomers will start dying or selling their homes to fund retirement or downsizing, while the young generation will be deep in debt. The young crowd are not having children either. There'll be an oversupply of homes for sale.

It was a sad day when a formerly elite public university like Cal Berkeley started admitting scholars (not student atheletes)with a 600 SAT score. I scored above 600 on the SAT when I was in 7th grade. They did this to increase enrollment and in the name of diversity. Now we have other elite universities, like Stanford, offering graduate degrees in hip-hop, Chicano studies, women's studies, ebonics etc. We wonder why China and India are kicking our asses. Close the curtains

Dude, why do you incessantly ask your readership where the next bubble is going to be? I'll tell you where it's going to be: where I'm not. If it was irresponsible to "get in on" the housing bubble, then the same logic applies to what, if anything, comes next. It's not sexy, but why aren't you touting "get rich slow"? Ultimately, who cares about money, anyway? If your loved ones are dying of an incurable disease, all the money in the world isn't going to buy back the time you missed because you were too busy grubbing for gold. How's that for family values?

"The current generation of graduates will have such an insane amount of student loan debt that they'll be scraping by and eating ramen for the next 20 years."

Simple solution: learn a trade.My old man was a Harvard-trained professor and said as much. Grade inflation and diploma glut has made undergraduate degrees not worth so much, anyway. I'd seriously think about setting my kids up in business unless they were getting a scholarship somehow. Cheaper, and they can still go to college later. Conversely, with online degrees, why get just one or two?

College costs as the next bubble. They have been for quite a while, but most people don't know about it...

I went to graduate school, and couldn't get a (well paying) job for several years after getting out of school. Well, I finally have one now. My student loan debts are now well over $100K. I went to a reasonably cheap school, and some of this was definitely my fault (allowing interest to compound for several years). Even with my good paying job, these debts are a SEVERE burden on me. HOWEVER, the government is hostile towards higher education.

For example:

1). you may only deduct up to $2500 a year in interest expense on student loans NO MATTER WHAT! My interest expense expense on student loans last year was more than $11k.

2). Once you start making more than $55k a year, your $2,500 interest deduction starts disappearing, WTF!@#? Since when is making $55K a year part of the "upper class" that needs to be taxed heavily?. Eventually, when you start making around $70k a year, you get NO INTEREST DEDUCTION! Why do you get to deduct ALL of your real estate interest, but only a partial (small amount) amount of education expense?

3). In reality student loans are NEVER dischargeable in bankruptcy court. If I could have discharged my educational debts, I would have declared bankruptcy when I was having financial problems.

I am making good money now and have been for about 1.5 years. What I am worried about is what happens a year or two from now.

The government needs to stop crapping on people and allow UNLIMITED or close to UNLIMITED deduction on student loan interest.

I have heard stories of people graduating with 200K or more in student loan debt. How can they repay this and have a "normal" life?

Let's put it this way. If you think that the economy will tank in the next year, than stay away from Alt Enery, Comodities, Oil, etc. Who's going to be interested in these in a recession environment. And Oil is overpriced as it is. It doesnt make a sense to me. Did we just run out of oil or what. The freaking war has been going on for years now. Once REASON kicks in, Oil will tank.

If you want to play the market I would go with a defensive play. The 4 Gs.

Once this receision has passed, than I would pick up some alt energy. I made alot of $$ with Alt E in the last 2 years, specifically, SPWR.

Gold is the next bubble. When the crash hits bad and people lose their jobs, they'll have to liquidate their gold to eat. Gold will flood the market and the price will drop. People are buying gold thinking gold will keep its value unlike cash but unless the government allows gold to be used as currency, amassing gold is not going to protect you when the going gets tough. You'll be lucky to find someone who is willing to let you unload the gold onto them for cash. You will probably lose money in the process.

Gold as an investment is only for the very very wealthy, the people who can afford to ride out a depression without liquidating any of their assets.

And these are the same people who MAY buy up your gold when you're desperate. They will buy it up cheap and hang onto it for the next cycle of depression when the goldmongers come out in force and talk up gold, gold, gold.

So even during the depression, these rich people will make money off suckers. And they may not even buy it from you - who knows how many cycles of bull market and bear market this gold swindle can go on for?

If you haven't bought gold when the price was low - $200 - then there's no point buying it now, because you will be buying at gold's peak.

And if you have gold and you're not ultra-rich, I would suggest you sell it now while the bubble is going strong.

When the depression hits people big is when gold prices will drop. It's guaranteed. Loss of jobs=gold dropping in price. Before the job losses start and while the depression fear is happening is when gold prices go up.

Gold was starting to waver a few days back. This is a sign. Sell gold NOW. Unfortunately you will be selling it to mugs but that's life.

And with the cash you have, spend it on non-perishable foods, and anything you can store for the future because prices will zoom up like they did in Weimar Germany. If you have a lot of cash, I would invest in a farm plot or kitchen garden as this can save you lots of money in the future. Then all you will need to do is spend money on rent (which does not go up with inflation unless your lease is due) and on fuel to get you to work and back. The depression will last two years so plan to be self-sufficient for two years. Do it now, get your money out of the bank and stock up the cellar or a large pantry. Don't forget toilet paper as well.

Think Weimar Germany: what is more valuable - two bars of gold worth $10,000 now or a pantry stocked with food? Remember 10,000 marks would only buy a loaf of bread inflation was so bad in that era.

This advice is for working and middle class people.

For rich people, no advice is needed to be given. In a depression, there are many investment opportunities for them as people want to liquidate their assets and will sell them cheap to any buyer.

Obama proposes $210 billion for new jobs JANESVILLE, Wis. - Democrat Barack Obama said Wednesday that as president he would spend $210 billion to create jobs in construction and environmental industries, as he tried to win over economically struggling voters.

The larger is $150 billion to create 5 million so-called "green collar" jobs to develop more environmentally friendly energy sources.

Sixty-billion dollars would go to a National Infrastructure Reinvestment Bank to rebuild highways, bridges, airports and other public projects.